29 April 2015

Yes. The government has big financial problems #nlpoli

Yet another academic paper emerged on Tuesday that pointed out that the provincial government has a big financial problem caused by following the flawed policy of spending all the money it takes in, plus more besides.

Don’t take that as a dismissal of the paper by University of Calgary professor  Ron Kneebone. To the contrary,  Kneebone’s paper adds yet more weight to the argument offered by a few people in this province since about 2006 or so. 

Taken together with the recent report by the Conference Board of Canada on the province’s economic competitiveness and you have a pretty strong indictment of the Conservative/Lockean policy the provincial government has been following since 2003.

Some people noticed the suggestion by Kneebone that the deficit in the upcoming budget might be $1.8 billion.  Odds are it won’t be that high in the final document.  The budget process is basically one that government uses to deal with the gap between income and spending.  That’s what a deficit is.

The Conservatives have spent a lot of time over the past couple of months sorting out a bunch of things, one of which is how they can reduce the gap between income and spending.  They’ll close the gap by doing a bunch of things.  They will cut spending in some areas, like say capital works.  They will try to find some new sources of income, like say a hike in the provincial sales tax.

Kneebone’s forecast of a $1.8 billion deficit is pretty simplistic.  He just held spending where it was and dropped oil revenue by another billion dollars on top of the forecast shortfall of almost $800 million for last year.  What Kneebone didn’t look at was what the government could do to reduce the deficit in the meantime.  In other words, his “deficit,” as some people call it, is actually the variance in oil revenue or non-renewable resource revenue. 

Kneebone produced this rather complex chart to show his data for Newfoundland and Labrador over the past 45 years.kneebone

The Conference Board had a chart that showed roughly the same information.

conf board

And for those who may have missed  it, here’s another look from SRBP from April 2013.

spending and non-oil

It was part of a series of posts that showed how some fairly simple policy choices by government taken from 2006 onward would have produced a very different financial situation than the one we have right now.

While we’re at it, here’s an updated version of another chat showing the same comparison of non-oil revenue and spending.  This one appeared in a post in March called “The Unsustainability Problem. “

rev less oil and exp

In case the pictures don;t mean anything to you,  the post translated the gap into numbers for the period from 2009 onward.  It’s pretty stark.  If you think that the $1.8 billion number was frightening, then you won;t want to look at the table.

the overage

What Kneebone’s paper reminds us of is not the numbers, by the way.  It’s the fact that the Alberta and Saskatchewan and Norwegian examples were already in front of us and well known when the Conservatives took office in 2003.  What they did, especially after 2009, was done despite a ton of solid evidence that they were on the wrong track.  Experience everywhere else showed what not to do but the Conservatives did it anyway.